Usually, when home sale contingencies are discussed, the conversation revolves around how the right clause can be used to give the buyer “an out” if their financing falls through or if inspection reports come back with a ton of red flags.
However, there are also contingencies that offer home sellers an added layer of protection if the sale goes awry. With that in mind, here are some of the most common seller contingencies, as well as why they’re included in home transactions:
1. The kick-out clause
Most sellers will turn their noses up at the idea of accepting an offer with a home sale contingency attached. However, sometimes there isn’t a better option available, and they have to make do with what’s on the table. If you’re buying a home that’s contingent upon you selling your current one, and you’ve gotten an offer accepted, many sellers will use a kick-out clause to make sure they aren’t left hanging.
When sellers add a kick-out clause into the purchase agreement, this means they can continue actively marketing their home for the same timeframe that you, as a buyer, have to market your current home.
If, during that time, the seller finds another buyer for their home who is better qualified, they can give you an ultimatum. Essentially, you have 72 hours to come up with the proper financing to purchase your home, or they’re allowed to move forward with the other buyer.
Obviously, the uncertainty and potentially undue stress of having to scramble for financing is no fun. But, it helps protect sellers from feeling taken advantage of if you can’t sell your home within a reasonable timeframe.
2. Home of choice contingency
Believe it or not, sellers actually have the option to use a type of home sale contingency of their very own. The home of choice contingency is the same concept in reverse. It gives sellers a specified timeframe in which to search for a suitable new home. If they’re unable to do so, they have the option to walk away from their transaction with the buyer and remain in their current home.
No potential buyers would be thrilled to see this clause. After all, a seller is asking you to put forth an extraordinary amount of work – securing financing, conducting inspections, etc — for relatively little assurance that they’ll get anything in return.
This clause is a power move that you’ll most often only see in seller’s markets where inventory is low, meaning that hungry buyers are often forced to compete for available properties. That’s when sellers have the best chance of finding a buyer who’s flexible enough to deal with the uncertainty that comes along with a “home of choice” clause.
If you’re in discussions with a seller who wants to include a home of choice contingency in your purchase agreement, you may want to look for other, more secure options. Otherwise, you run the risk of wasting precious time and/or money.
3. Rent back contingency
Finally, we have the rent back contingency. This is most commonly used in situations where the sellers have found a buyer for their current home and are in the process of buying a new one at the same time. In the event that closing on their current home happens before they’re able to close on a new property, this clause lets them avoid the hassle of moving twice.
It allows the sellers to rent their old home from its new owners for a specified amount of time, usually until they’re able to close on the new home.
As a goodwill gesture (and a leg up in hot real estate markets), buyers can offer sellers a rent back with their initial offer to make it more lucrative.
Otherwise, a seller is essentially asking the buyer for a big favor. They’re not obligated to say yes, and renting the property back to the seller may interfere with their own housing plans. In exchange for a rent back, sellers might consider accepting a lower sale price than without one, or being more flexible when it comes to dealing with repair requests.
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